Analysis

Despite Covid-19 Spotify grew its subscribers to 130m in Q1 2020


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With recent reports that audio music streams had fallen during the Covid-19 pandemic, we’ve been waiting for Spotify’s Q1 2020 financial results with a mixture of anticipation and trepidation. Would they reveal a decline in listening, but more importantly, about an impact on paid subscriptions?

The figures are out, and it’s good news – for now at least. Spotify ended Q1 with 130 million subscribers, up by 31% year-on-year, having added six million during the first quarter of this year.

Spotify ended the quarter with 286 million monthly active users, also up by 31% year-on-year, having added 15 million during Q1.

Covid-19 has had an impact though. “While MAUs and subs remained in line with our forecast and held steady, in hard hit markets like Italy and Spain, we saw a notable decline in Daily Active Users and consumption,” announced Spotify. “But over the last few weeks, we’ve seen listening start to rebound, and in many markets, consumption has meaningfully recovered.”

The company stressed that the decline in daily active users and consumption (streams) did not negatively impact on monthly active users, nor (crucially) on subscriber numbers.

“In fact, both new and reactivated MAUs grew substantially even during lockdown periods in major markets. Additionally, despite some of the consumption changes, the ratio of Daily Active Users relative to Monthly Active Users was strong in the quarter. We did see a bit of a decline over the last few weeks of March; however, the average DAU/MAU ratio for the quarter was higher than in Q1 of 2019.”

The company added that churn – people cancelling their subscriptions – was “in line with expectations” given that Q1 usually sees a bit more of that.

“We did see some minor impact from the effects of COVID-19 (modest increase in cancellations and payment failures) at the very end of the quarter, but it had little impact on reported churn and trends have been steadily improving,” admitted Spotify.

“Approximately 1 in 6 respondents to our exit survey in the US cited COVID-related reasons for cancelling their accounts. Encouragingly, more than 80% of those respondents indicated that they are extremely likely or likely to renew once the economic situation improves.”

What did all this mean for revenues? Spotify generated 1.85bn ($2bn) of revenue in the first quarter of 2020, up by 22% year-on-year. As usual, the vast majority came from subscriptions: premium revenues grew by 23% to €1.7bn, while advertising revenues grew by 17% to €148m.

Unsurprisingly, Spotify’s advertising business has been hit by Covid-19, with its revenue falling short of expectations. Here’s what the company had to say about that:

“Prior to the global health crisis, we were in a strong position to hit or exceed our Q1 target. Revenues were pacing ahead of forecast as a number of initiatives implemented toward the end of 2019 seemed to be bearing fruit faster than anticipated,” explained Spotify.

“However, in March we saw deceleration across all sales channels as previously booked business was cancelled or paused, and Programmatic buyers pulled back spend. Ad-Supported Revenue in the last 3 weeks of the quarter was more than 20% below forecasted levels as a result.”

Spotify reported an operating loss of €17m for Q1 2020, compared to an operating loss of €47m a year ago. But here’s a thing: it reported a net profit of €1m for the quarter, compared to a €142m loss a year ago. A boost in ‘finance income’ (from €7m to €70m) and a big drop in ‘finance costs’ (from €103m to €12m) are the cause.

Other takeaways from Spotify’s Q1 2020 financial results include:

– Spotify’s average revenue per user (ARPU) for its premium subscriptions was €4.42, compared to €4.65 in the previous quarter, and €4.71 a year ago. Spotify says that the “continuation of longer free trials rolling over from Q4 and additional intake during Q1” was the main reason.

– Spotify has revised downwards its financial guidance for the year. It now expects to generate €7.65bn-€8.05bn in revenues this year, down from its previous forecast of €8.08bn-€8.48bn. The company still expects to end the year with 328m-348m monthly active users and 143m-153m premium subscribers.

– More than 27,000 artists added Spotify’s new Artist Fundraising Pick to their profiles on the first day of its availability. There are now around 50,000 using it.

– Spotify has “taken steps to slow hiring for the remaining three quarters of 2020 and have reduced open headcount by roughly 30% from prior growth expectations… We also recognise it may be more challenging to effectively recruit and onboard given the inherent uncertainty moving forward.” Update: Spotify contacted Music Ally to point out that its headcount will still be up by 15% year-on-year. “We’re still hiring, just a slowdown,” said a spokesperson.

– More on changing listening habits: “Not surprisingly, we have seen usage in Car, Wearable, and Web platforms drop (double digits in some instances). However, the audience through TV and Game Consoles has grown materially, in excess of 50% over the same time period… connected device usage generally is up more than 40% among Ad-Supported users globally.”

– 19% of Spotify’s total monthly active users are now listening to podcasts, up from 16% in Q4 2019. That means around 54.3 million people. There are now more than one million podcasts available on Spotify, with 60% of them coming from Anchor, the podcast-creation app it bought last year.

Now read our interview with CEO Daniel Ek from this morning, after the financials were announced.

Stuart Dredge

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